ECONOMY / PRIVATE INVESTMENT SLOWDOWN

BoT trims forecast by half point

Export projections are revised upward

PARISTA YUTHAMANOP

The Bank of Thailand has cut its growth forecast for 2007 by a half-percentage point to a range of 4% to 5% as private investment is expected to remain sluggish due to continuing political uncertainties, the New Year's Eve bombings in Bangkok and flooding last year. The economic growth forecast for 2008 was maintained at 4% to 5.5%. Growth last year has been estimated at 5.1% but official figures will not be available until March.

The central bank, in its latest Inflation Report, reduced its domestic demand projections for 2007, but revised upward its export growth estimates to between 7.5% and 10.5% from 6% to 9% in its last report. Exports grew by 17-18% in 2006 from the previous year.

The forecast inflation rate was cut to a range of 1% to 2% this year from 1.5% to 2.5%. Headline inflation is projected at 1% to 2.5% in 2008.

Forecasts for core inflation, which excludes food and energy prices, were also revised downwards to 1.5% to 2.5% this year, compared with 1.5% to 3% earlier. Core inflation is projected at 1% to 2.5% in 2008.

Suchada Kirakul, a central bank assistant governor, said trends for international trade this year would be higher than expected, but estimates of domestic demand had weakened from the last forecast.

Private investment trends, meanwhile, would continue to be affected by weak sentiment and lower public investment.

''The external and domestic drivers have come into balance in 2007. Exports will slow from 2006. As for domestic factors, emphasis should be given to domestic spending and investment,'' she said.

Mrs Suchada said a slowdown in exports would stem from a slowdown in economic activity among Thailand's major trading partners, estimated at 4.2% growth this year compared with 5% in 2006.

Imports are expected to weaken this year due in part to lower oil prices. The trade account is projected to show a surplus of $2 billion to $4 billion, compared with an original estimate for a deficit of $4-7 billion.

The current account deficit is projected to show a surplus of $2.5 billion to $4 billion this year, compared with earlier estimates of a deficit of $3-6 billion.

''The [sharp] revision in the trade balance results from slowing demand and a better-than-expected export outlook,'' Mrs Suchada said.

The central bank also projects the baht to appreciate more slowly this year than in 2006, due to the 30% reserve rule on capital inflows.

The Dec 18 rule is projected to help boost economic growth by 0.79%, thanks to the benefits of a weaker baht on exports.

While the heavy losses on the Stock Exchange of Thailand due to the psychological impact of the Dec 18 measure would affect domestic demand due to the loss of investor wealth, the measure would help boost exports and benefit the economy overall, Mrs Suchada said.

Investment overall is projected to grow by 6% to 7% this year, down from earlier forecasts of 8% to 9% growth. Private investment is projected to rise 4.5% to 5.5%, with public investment up 10-11% from 2006.

''The downward revision of private investment reflected a worse-than-expected private investment trend in October and November [last year] due to weak sentiment. We had earlier expected that investment would start to recover in the fourth quarter of 2006,'' Mrs Suchada said.

She said the central bank had revised fiscal spending projections based on the new 2007 fiscal budget.

But public spending growth would reflect in part low base effects, while a portion of the 146-billion-baht deficit outlined in the 2007 budget would be used to offset losses incurred from past government programmes.

Mrs Suchada said public spending for the current fiscal year would be lower than in previous years, with the government investment budget accounting for 24% of total expenditures compared with 26% previously.

The central bank also cut its forecasts for domestic consumption to a range of 3.5% to 4.5% in 2007, down from earlier estimates of 4% to 5% growth.

Mrs Suchada said weaker oil prices would help economic growth. Dubai oil prices are projected to average $56.50 per barrel this year, compared with $61.50 last year.

Mrs Suchada said the trend towards slower global economic growth would cause farm prices to decline by 1.7% this year and 4% in 2008.

Bangkok Post
Sunday January 28, 2007